Class Action Lawsuit Against Morgan Stanley May Proceed

Class Action Lawsuit Against Morgan Stanley May Proceed

By Dominic Rivera

U.S. District Court Federal Judge Jesse Furman has ruled that a group of 18 investors from Singapore who lost money in credit-linked notes worth $154.7 million may pursue their class action lawsuit against Morgan Stanley, the global financial services company.

The judge ruled that the group of investors may represent the class of all those who bought any of the 7 series of Pinnacle-notes that was issued in 2006 and 2007. The investors sued Morgan Stanley in 2010, alleging that the notes is a “bait and switch” scheme that would only benefit the company at the expense of the customers.

The investors alleged that Pinnacle-notes, which lost almost all of its value, were designed to fail from the beginning. The Pinnacle notes, according to the investors, were based on subprime mortgage-backed securities, Icelandic banks and other companies that Morgan Stanley knew were in trouble.

The investors also claimed that Morgan Stanley invested their principle amounts in high risk collateralized debt-obligations, and that it made short positions on the collateral so it would profit when the notes collapsed.

The investors further claimed that the company did not disclose that they were counter-party to these agreements. Because of this, the lawsuit claimed that Morgan Stanley made a dollar for every dollar that the investors lost.

The plaintiffs are represented by Daniel Hume, Ira M. Press and Andrew McNeela of Kirby McInerney LLP.

The case is Dandong et al. v. Pinnacle Performance Ltd. et al., case number 1:10-cv-08086, in the U.S. District Court for the Southern District of New York.

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